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Financial Integration and Risk-Adjusted Growth Opportunities

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  • Iryna V. Ivaschenko
  • Gianni De Nicoló
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    Abstract

    This paper documents the evolution of measures of financial integration for major advanced and emerging markets economies, assesses whether advances in integration have had a significant positive impact on countries'' risk-adjusted growth opportunities, and identifies some of the channels through which financial integration may foster growth. Three main results obtain. First, financial integration has progressed significantly worldwide, particularly in emerging markets, and regional integration has advanced at the fastest pace in Europe. Second, a country''s speed of integration predicts future country''s risk-adjusted growth opportunities, while improved risk-adjusted growth opportunities predict future advances in integration, indicating that the countries whose integration has been faster may have benefited most from a virtuous dynamics in which financial integration and improved real prospects are mutually reinforcing. Third, financial integration predicts globalization but the reverse does not necessarily hold, while advances in financial integration predict advances in financial development and improvements in the liquidity of equity markets.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/126.

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    Length: 24
    Date of creation: 01 May 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/126

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    Related research

    Keywords: Liquidity; Developed countries; Developing countries; Financial risk; financial integration; financial globalization; european financial integration; foreign assets; financial deepening; international financial markets; globalization; european integration; resource allocation; financial markets; international financial; international financial integration; financial liberalization; capital flows; economic integration;

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    1. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    2. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
    3. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
    4. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
    5. Alicia Garcia-Herrero & Philip Wooldridge, 2007. "Global and regional financial integration: progress in emerging markets," BIS Quarterly Review, Bank for International Settlements, September.
    6. Geert Bekaert & Campbell R. Harvey & Christian Lundblad & Stephan Siegel, 2007. "Global Growth Opportunities and Market Integration," Journal of Finance, American Finance Association, vol. 62(3), pages 1081-1137, 06.
    7. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers 06/189, International Monetary Fund.
    8. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
    9. Gianni De Nicoló & Alexander F. Tieman, 2006. "Economic Integration and Financial Stability," IMF Working Papers 06/296, International Monetary Fund.
    10. Kpate ADJAOUTE & Jean-Pierre DANTHINE, 2004. "Equity Returns and Integration: Is Europe Changing?," FAME Research Paper Series rp117, International Center for Financial Asset Management and Engineering.
    11. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
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    Cited by:
    1. Frigyes F Heinz & Yan Sun, 2014. "Sovereign CDS Spreads in Europe: The Role of Global Risk Aversion, Economic Fundamentals, Liquidity, and Spillovers," IMF Working Papers 14/17, International Monetary Fund.
    2. Gianni De Nicoló & Iryna V. Ivaschenko, 2009. "Global Liquidity, Risk Premiums and Growth Opportunities," IMF Working Papers 09/52, International Monetary Fund.
    3. Gianni De Nicolò & Luciana Juvenal, 2010. "Financial integration and risk-adjusted growth opportunities: a global perspective," Working Papers 2010-012, Federal Reserve Bank of St. Louis.
    4. Gianni De Nicolò & Iryna Ivaschenko, 2009. "Global Liquidity, Risk Premiums and Growth Opportunities," CESifo Working Paper Series 2598, CESifo Group Munich.

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